This is the time of year where we all like to pull out our crystal ball and make some speculations about what the local housing market will look like in 2023.
This year, the Federal Reserve has been aggressive in raising interest rates at 0.75 basis points for four consecutive periods since June, in an attempt to slow down the economy and curb inflation. The effect on the housing market has been significant. Affordability has decreased as mortgage rates nearly tripled from last year to just over 7% earlier this year.
However, just this month we started to see a little bit of good news because the inflation rate dropped to 7.1%, down from 9% in June. This caused the Federal Reserve to slow down rate hikes to just 0.50 basis points. For five straight weeks in a row, interest rates have dropped to just a bit over 6% on a 30-year fixed mortgage. Many economists expect this trend to continue and feel that we could end up at about 5.75% for a 30-year fixed mortgage by the tail end of next year.
Inventory is expected to remain tight next year, because we just don’t build enough housing to support our local demand. It’s this tighter inventory that will keep housing prices fairly stable next year. Gone are the double digit appreciation days of the last few years, but housing will still appreciate around 3%+ and continue to be a sound long-term investment. With the higher interest rates and less affordability, expect houses to take a little longer to sell.
“There will be good opportunities for buyers, who have missed out on buying over the past couple of years,” said Doug Goss of KW Bay Area Estates.
However, demand is still strong as our members report increasing crowds at their open houses.
So how can homebuyers prepare themselves for 2023? It starts with working with a really good lender that can secure competitive financing. You still need to go into this market pre-approved. The difference is that lenders have come up with new financial products and are bundling them with down payment assistance programs when feasible.
We spend a lot of time talking about a traditional 30-year fixed mortgage, but do not limit yourself to that.
“This is a great time for buyers and even more so for those first-time homebuyers,” said Michelle Perry, 2023 president-elect of the Santa Clara County Association of Realtors. “There is less competition and sellers are ready to negotiate. There are several county, city and loan programs that offer down payment and closing costs assistance. This last quarter, I personally helped several first-time homebuyers make a purchase they thought was beyond their reach, especially due to the rising rates, but with the benefits through special programs, the dream of homeownership became a reality.”
How about sellers, how can they better prepare themselves for next year? It starts with setting reasonable expectations and consulting with a skilled real estate professional.
“Sellers may not get several non-contingent all cash offers, rather they may get just one or two offers if their home is priced well and shows well. They should also be prepared to give a little too,” says William Chea, 2023 president of the Santa Clara County Association of Realtors.
You will need to pair yourself up with a realtor who really knows the local market to guide you though your home selling process. While homes will be sitting on the market a little longer next year, we are already seeing homes that are priced right and professionally staged selling faster and for more than asking price. In addition to properly preparing your house for sale, you should consider being more open to offers that include contingencies like appraisal, financing, home inspection, making repairs, paying for buyer closing costs and being flexible on the timing of closing.
So to recap, houses will continue to sell, but they will take a bit longer. Home prices are expected to be fairly stable. Mortgage rates may drop later next year, but that does not mean putting off the purchase of your dream home as you can always refinance later if rates drop. Finding the perfect home is a bit more difficult.
San José Spotlight columnist Neil Collins is CEO of the Santa Clara County Association of Realtors, a trade association representing more than 6,000 real estate professionals in Santa Clara County and surrounding areas. His column appears every fourth Thursday of the month. Contact Neil at [email protected] or follow @neilvcollins on Twitter.